Comparing Tsunami to alternatives
Spot Traders and LPs Everywhere Are Underserved
TsunamiX improves both the trader and LP experience
While AMMs have taken spot trading from 0 -> 1 with decentralized exchanges, the blemishes and imperfections with such old models have come to light. AMMs like Uniswap, Curve, and Balancer use constant product curves. In this curve lays many of the problems that exist for both traders and LPs.
With constant product curves, traders experience significant slippage and open themselves to risk-free front running by others in the system. And while traders have it tough, LPs carry the largest burden in constant product curve AMMs.
LPs fundamentally make markets and sell volatility. The source of loss for LPs is twofold.
1) LPs sell volatility way too cheaply
2) LPs use incorrect market prices to make trades with external agents in the system
At first, many brushed off these losses as IL, or impermanent loss, but the market has observed that these losses tend to become permanent over time and represent a failure of the constant product curve to quote the price of assets fairly.
Trader Problems: Slippage, Front running incentive
LP Problems: LPing is unsustainable and destroying the capital of LPs, LPs get arbitraged, sell volatility too cheaply, and sustain a not-so-impermanent loss
Virtual AMMs, or VAMMs, attempted to bring a solution to perpetual futures trading, but in only a year of VAMMs existing in production, obvious cracks have begun to form. These problems originate from the constant product curve that Uniswap brought to crypto.
One difference is that there are no LPs in a VAMM, rather traders trade in a somewhat peer-to-peer-zero-sum fashion.
Liquidity and slippage are the main issues at play here. Because a constant product curve is instantiated with particular assets at particular prices, once the market deviates from those prices, traders end up experiencing worse slippage. This has come to be known as the re-pegging problem with VAMMs.
And while some protocols claim to be able to mitigate concerns related to re-pegging, they introduce further uncertainty into the systems when they do so. For every re-pegging that occurs, one trader will have an instantaneous gain, and another will have a loss.
Trader Problems: Uncertain exit liquidity, Uncertain exit price, Slippage
LP problems: LPs cannot participate
For spot, futures, and options trading, central limit order books are some of the best mechanisms for facilitating trade. They have great price discovery, enable dynamic market-making strategies, and possess the most customization out of any option.
The problem is that CLOBs are very expensive to run on-chain and they are almost entirely inaccessible for the public to become market makers in any profitable function.
Problems: Computationally expensive on-chain
LP Problems: Passive LPs cannot participate
TsunamiX Finance recognizes all of these existing problems and presents a solution that delivers the best trading and LP experience.
Given a world of constantly evolving technology and tradeoffs, we aim to build a product that is extremely easy, fun, and delightful to use from a trader and an LPs perspective.
We have taken a new model to facilitate trade. One that serves both LPs and traders better than we believe has ever been done before - we call it dynamic liquidity pricing.